Global EV Adoption And Autonomous Software Will Redefine Mobility

Key Takeaways

• Strong technological differentiation and AI-driven features position XPeng for margin expansion, software-driven recurring revenue, and premium market penetration domestically and internationally.
  
• Strategic collaborations and global expansion are set to diversify and stabilize income, accelerating revenue growth and supporting superior long-term profitability.
  
• Ongoing losses, high R&D spending, pricing pressure, and heavy dependence on China create significant profitability and risk challenges amid volatile EV and regulatory landscapes.

Catalysts

Designs, develops, manufactures, and markets smart electric vehicles (EVs) in the People’s Republic of China.

• Analyst consensus acknowledges significant R&D investment for AI and in-house technology may compress margins in the short term, but current delivery momentum, proven superiority of XPeng's AI hardware (with computing power 3x peers) and rapid scaling up of next-gen models point toward much faster-than-expected ASP expansion and a rapid improvement in gross margins and earnings within the next year.
  
• While analysts broadly expect international expansion to boost revenue at the cost of higher SG&A, XPeng's strong brand reception abroad, unique cross-market product design, and rapid overseas delivery ramp are likely to drive a faster, more profitable penetration of premium segments globally, significantly increasing total addressable market and accelerating revenue growth.
  
• XPeng's deep integration of intelligent software, including in-house developed Turing AI SoCs and proprietary operating systems, positions it for future dominance in the fast-growing "software-defined vehicle" space, unlocking lucrative recurring revenue streams from subscriptions and over-the-air feature sales that will structurally enhance net margins.
  
• The accelerating urbanization and rising middle class in China and Southeast Asia are fueling strong demand for premium, tech-forward mobility; XPeng's strategic focus on aspirational aesthetics, emotional design, and advanced technology in vehicles like the G7 and new P7 uniquely positions it to capture outsized market share and yield higher ASPs and stronger gross margins.
  
• Strategic collaborations-most notably with Volkswagen, extending XPeng's E/E architecture to multiple global platforms-open the door to high-margin licensing, platform fees, and technical services revenue, adding stable, diversified income streams that reduce earnings volatility and improve overall profitability.

XPeng Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on XPeng compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming XPeng's revenue will grow by 48.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -7.1% today to 6.0% in 3 years time.
• The bullish analysts expect earnings to reach CN¥11.7 billion (and earnings per share of CN¥8.45) by about August 2028, up from CN¥-4.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.0x on those 2028 earnings, up from -33.1x today. This future PE is greater than the current PE for the US Auto industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.86%, as per the Simply Wall St company report.

XPeng Future Earnings Per Share Growth

Risks

• The company continues to operate at a net loss, with RMB 0.48 billion in net losses for Q2 2025 despite strong delivery and revenue growth, suggesting ongoing profitability challenges which could pressure earnings if not resolved.
  
• Increasing R&D and capital expenditures, with R&D expenses up 50.4% year over year driven by investments in new vehicle models and AI technologies, risks further diluting future net margins unless matched by higher premium sales or sustained cost reduction.
  
• Aggressive competition and intense price wars in the Chinese EV market, as acknowledged by management, may cap XPeng's pricing power and necessitate lower average selling prices, thereby limiting gross margin expansion and threatening top-line growth.
  
• While international sales are expanding, XPeng remains highly reliant on the Chinese market for the bulk of its sales and revenue, leaving the company exposed to any prolonged economic slowdown, policy change, or regulatory intervention in China, which could sharply impact overall revenue.
  
• The shift toward shared mobility, regulatory scrutiny on battery and EV production, and supply chain complexities-especially global trade barriers-pose long-term risks of increased costs or sales disruption, which could compress future margins and constrain revenue growth internationally and domestically.

Valuation

• The assumed bullish price target for XPeng is $34.15, which represents two standard deviations above the consensus price target of $25.98. This valuation is based on what can be assumed as the expectations of XPeng's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.64, and the most bearish reporting a price target of just $18.05.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥195.4 billion, earnings will come to CN¥11.7 billion, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 12.9%.
  
• Given the current share price of $20.74, the bullish analyst price target of $34.15 is 39.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.